Toro Co (TTC) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Toro Company fiscal 2014 fourth-quarter and full-year earnings conference call. My name is Britney and I will be the coordinator for today. (Operator Instructions). I would now like to turn the presentation over to your host for today, Ms. Amy Dahl, Managing Director of Corporate Communications and Investor Relations for The Toro Company. Please proceed, Ms. Dahl.

Thank you, Britney, and good morning. Our earnings release was issued earlier this morning by Business Wire and a copy can be found on the investor information page of our corporate website, theToroCompany.com.

Joining me for this earnings call are Mike Hoffman, our Chairman and Chief Executive Officer; Renee Peterson, Vice President, Treasurer and Chief Financial Officer; and Tom Larson, Vice President and Corporate Controller.

We begin with our customary forward-looking statement policy. During this call, we will make forward-looking statements regarding our business and future financial and operating results. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our earnings release, as well as our SEC filings, detail some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements.

And with that, I will now turn the call over to Mike.

Thank you, Amy, and greetings to all our listeners.

This morning we were pleased to report that the Company delivered record-setting results for the 2013 fiscal year including records for revenues, operating earnings and earnings per share. We achieved a 4.2% increase in net sales, surpassing the $2 billion level for the first time in our Company's history. Our operating earnings grew to $230.7 million and we delivered earnings per share of $2.62.

Crossing the $2 billion revenue mark is a gratifying way to help kick off the coming year in which we will celebrate another important milestone, the 100th anniversary of our founding on July 10, 1914. As we prepare for our second century, the Company's focus on both creating and returning value to our shareholders remains steadfast.

Renee will detail our financial and operating results in a few minutes.

Turning to our individual businesses, first, as you may recall, our golf equipment sales got to a very strong start during the first half of the year, and in particular during the first quarter. The early surge was fueled by channel demand for pre-Tier 4 products. As we commented then, this would even out later in the year, and it did.

While our early professional golf equipment shipments showed little sign of being hampered by the adverse weather, golf course revenues felt the pinch as conditions kept golfers off the links. According to the PGA tracking reports, the industry's days open for play were down nationally by 6.7% for the year, which translates to approximately 17 fewer golfing days than in 2012. Golfers, however, proved their resilience as rounds played for the year declined by only 5%. As weather conditions improved during the latter half of the year, play increased which helped golf course total revenues recover and finish essentially flat for the year.

As we have mentioned during previous calls, our new lightweight Fairway Mower, the Reel Master 3550, continues to enjoy widespread acceptance.

The irrigation side of our golf business is benefiting from system upgrades and replacements. During the year we earned a number of significant systems installation projects and increased our position in the advanced sensor field.

Overall product performance and the stability and strength of our distribution channel are critical factors in our golf equipment and irrigation market success. During 2013, they certainly helped us earn the opportunity to extend agreements with many long-term customers as well as establishing promising new ones with several high profile, premier venues and events around the world, all of which we are honored to serve.

Moving to our landscape contractor business, the robust retail activity we reported last quarter slowed somewhat in September due to a lack of moisture but rebounded in October to finish an already strong year on a positive note, especially in the professional zero turn product category.

Similarly, our Professional Grounds product sales grew nicely in fiscal 2013 on top of what you may remember was a good 2012 season. This was driven in part by improved revenues for tax supported entities. In their continued drive for efficiency, these customers are finding the productivity solutions they seek in our wide array of products.

As a result, Toro continues to be added to many state and local government contracts. This helped increase our professional grounds business sales in 2013 and should bode well for business in 2014.

While we are still in the transition phase between pre-Tier 4 and Tier 4 final products, we are pleased with the early demand for our Tier 4 qualified offerings. Those professional grounds customers who are committed to green practices are electing to move to models equipped with our latest emission controls. They also see the value of added innovations like our patent pending Smart Power System. While overall industry shipments are flat in the category, our share position remains strong.

Like professional grounds, our professional construction and rental businesses drove strong growth finishing the year with a solid fourth quarter, fueled by increased retail activity across key markets. We are now in production on all of our new red Underground Products, which we officially launched this fall at the International Construction and Utility Equipment Exposition in Louisville. Our product line has been well received, we are successfully signing on new dealers and we have ongoing opportunities with several national account prospects.

Next, our Residential and Commercial irrigation and professional lighting businesses delivered steady performance. We continued to achieve increased installation of our new Unique Lighting offerings due to customer demand for our innovative new products as well as increased distribution.

Our residential equipment business experienced some ups and downs throughout the year. Unfavorable spring weather reduced early season market demand for walk power mowers leading to sales being down for the year. On the other hand, our residential zero turn riding mowers, which are enjoying growth due to customers switching from traditional riders, delivered strong results for the year.

Summer retail for spring goods was strong for most product categories due to the eventual arrival of spring like weather, particularly for our zero turn mowers. Fall retail sales mirrored those we saw in the landscape contractor business, slowing in September due to limited rainfall and then recovering again in October.

We enjoyed strong fall retail results of our electric blowers. The fact that three Toro models received the top rankings from a leading consumer rating magazine and were all rated Best Buys may have helped to drive these blower sales.

Finally, snow sales for the fourth quarter were up due to increase preseason demand and interest generated by our S'no Risk promotional campaign.

On the international scene, the global economic recovery continues its modest pace with widely varying regional conditions. Our golf and grounds equipment business has made gains in parts of Asia and Europe during the quarter and year and demand remains strong for our micro irrigation products. In Europe, our sales experience suggests that residential customers are increasingly adopting zero turn riding equipment, and our new value priced two-stage snow throwers also were well received.

Dry conditions helped boost sales of our Pope and golf irrigation products in Australia. In addition, our international team made their first sales of underground construction products, helping to build momentum in that category.

In spite of the modest economic recovery in Europe and water restrictions in parts of the United States, our micro irrigation business remains solid in core markets and we are expanding our presence worldwide. The business achieved growth for both the quarter and the year benefiting from strong demand for fall planting and increased capacity.

As we announced in September, we completed our acquisition of Xiamen Water Saving Equipment Company in Xiamen City, China, which will enable us to grow our presence in that important market.

Overall, it was a good year for The Toro Company. Our professional businesses delivered consistently strong numbers across product categories and residential sales recovered as expected as the weather patterns improved during the year.

I will now turn the call over to Renee to detail our financial and operating results.

Thank you, Mike, and good morning, everyone.

Sales for fiscal 2013 grew to $2.041.4 billion compared to $1.958.7 billion for fiscal 2012. We achieved net earnings for the year of $154.8 million or $2.62 per share. This compares to fiscal 2012 earnings of $129.5 million or $2.14 per share.

Net sales for the quarter were $382.4 million compared to $339.3 million for the same period a year ago. We delivered net earnings of $5 million or $0.08 per share, compared to breaking even in the fourth quarter of fiscal 2012.

For the first quarter of 2014, we expect net earnings of about $0.35 per share, compared to $0.53 per share during the first quarter of fiscal 2013, when demand for pre-Tier 4 product significantly accelerated shipments into the quarter, which as we stated at the time, will not be repeated in fiscal 2014. This year we expect those sales to return to a more traditional second and third quarter pattern.

In addition, you might recall that in the first quarter last year we realized a $0.05 benefit to our earnings per share from the retroactive reenactment of the domestic research tax credit which also will not be repeated in the first quarter of fiscal 2014.

For the year, we repurchased approximately 2 million shares of Company stock at an average price of about $46 for a total cost of about $99 million. This includes roughly 420,000 shares in the fourth quarter at $23 million. At year-end, we had approximately 4.3 million shares outstanding on the authorization. We expect the reduction in the number of diluted shares will be somewhat less in the year ahead than in fiscal 2013.

Our professional segment sales were up 7.2% to $1.425.3 billion for the year. This includes 11.9% growth for the quarter to $255.8 million. Strong demand for landscape contractor equipment and higher sales of golf equipment and irrigation solutions, construction and rental offerings, commercial grounds equipment and micro irrigation products all contributed to the growth.

Domestic professional equipment field inventory finished up for the year, primarily due to channel demand for pre-Tier 4 commercial equipment and expansion of our rental and construction business.

Professional segment earnings were $254.4 million for the year, up 9.6% compared to fiscal 2012. Professional segment net earnings for the quarter totaled $21.8 million, a 5% increase compared to last year.

Our residential segment sales for the year declined 2.1% to $594.4 million. This change is attributed to a decrease in walk power mower sales caused by unfavorable spring weather and lower snow thrower sales last winter. The fourth quarter saw residential sales rise 14.3% from a year ago to $116.6 million, which is attributable to a favorable preseason shipment of snow throwers compared to a year ago along with increased demand across several spring product categories.

For the year, residential segment earnings, net earnings were $62 million, up 7.2% from last year. Residential net earnings for the quarter totaled $10.1 million, up $3.4 million from last fourth quarter, due to product mix and improved retail demand for snow, lower commodity costs and productivity improvements.

Now onto our key operating results. Gross margin for the year was up 110 basis points to 35.5%. For the quarter, gross margin improved 30 basis points to 33.6%. Product mix influenced our margin results for both the quarter and the year along with price increases on professional products and benefits from our productivity initiative efforts. Margin expansion for both the quarter and the year was somewhat offset by unfavorable currency exchange rates. While we will likely see a similar drag from exchange rates in fiscal 2014, we anticipate gross margin improvement by up to 50 basis points.

SG&A expense as a percent of sales increased by 30 basis points for the full year on a sales increase of 4.2%. This increase was due to engineering spend offset by warranty improvement. SG&A decreased by 70 basis points for the quarter against a 12.7% increase in sales. For fiscal 2014, we expect SG&A to be slightly better as a percent of sales.

Other income for the year was up $4.7 million to $12.3 million. This increase was primarily due to a one-time legal recovery, which contributed $0.03 to our after-tax earnings per share, as well as lower foreign-currency losses and higher income from our channel financing joint venture, Red Iron Acceptance.

Operating earnings as a percent of sales improve 80 basis points to 11.3% for the year including a fourth-quarter increase of 100 basis points to 2.2%. We anticipate that our Destination 2014 focus on productivity as a means of achieving profit improvement will continue to have a positive effect on our operating earnings next year.

Interest expense declined for the year by 4.1% to $16.2 million. Interest expense for the quarter was down 5.2% from the same period a year ago to $3.9 million.

Our effective tax rate for the year was 31.7% compared to 34% last year, due to the retroactive reenactment of the domestic research tax credit. We expect our tax rate for fiscal 2014 to be about 33%.

Turning to the balance sheet, accounts receivable at the end of the year totaled $157.2 million, an increase of 6.6% compared to fiscal 2012, against sales growth of 4.2%. Net inventories were down 4.4% to $240.1 million.

Trade payables increased 9.1% to $136.2 million. Finally, commodity prices remained generally favorable for the year and we anticipate limited inflationary pressure that will be offset by both internal and supplier productivity improvements.

As you know, we remain focused on inventory, accounts receivable and trade payable management. At the end of the year, the Company's 12-month average networking capital as a percent of sales was above last year's level, coming in at 16.6%. We will continue our focus on working capital in 2014 with the goal of driving it down from current levels.

While we expect average inventory levels to be lower next year, our capital expenditures are projected to be about $65 million on additional investments in product research and development capabilities and capacity. We expect next year's depreciation and amortization to be about $50 million. Free cash flow next year is expected to be approximately $150 million.

As noted in the earnings release, we are pleased to announce that in light of our consistently strong levels of cash flow, the Board of Directors has increased our regular quarterly cash dividend by 43% to $0.20 per share from a previous rate of $0.14 per share. In addition, we are changing our dividend guideline to increase it to 30% to 40% of the three-year average of our earnings per share results.

In fiscal 2013, the Company paid $32.5 million in dividends. When added to the more than 2 million shares of repurchased common stock, we returned a total of more than $130 million to our shareholders for the year. These actions are consistent with our focus on returning value to shareholders.

That said, our overall investment priorities remain the same. We continue to look internally and then to strategic acquisition opportunities to drive profitable growth.

I will now turn the call back to Mike for his concluding comments.

Thank you, Renee. We are gratified to have delivered record revenues, operating earnings and earnings per share along with increasing our dividend for 2014. While there are no guarantees of favorable weather and economic conditions, we look forward to delivering another strong showing in fiscal 2014 by focusing on those things we can control.

Our positive outlook is based in part on our belief that customers will continue to respond to our steady introductions of innovative products and services to, as our purpose statement pledges, help them enhance the beauty, productivity and sustainability of the land.

Since 1914 innovation has been the lifeblood of this Company. It is appropriately identified as such in the tagline of our official centennial logo, A Century of Innovation. In fact, as you know, we have a standing goal of driving 35% of sales annually from new products, which we define as products introduced in the current and previous two fiscal years.

During fiscal 2013, our new product sales were slightly below our target level which was due in part to the significant investment we made to meet Tier 4 compliant standards. We are projecting new product sales in fiscal 2014 will once again exceed our goal.

Our commitment to innovation is reflected in the recognition several of our latest product and service innovations have received from a number of authoritative bodies. Our Smart Speed Zs also received a 2013 Innovation Award from Handy Club Magazine of America. The Irrigation Association recognized our new Evolution Series controller with a new product award at the 2013 Irrigation Show in November and this was the third year in a row we brought home a new product contest award from the irrigation industry's premier annual show.

In November, the Minnesota High Tech Association honored Toro for providing superior technology innovation and leadership with a 2013 Tekne Award for our revolutionary site assessment system. This provides golf course superintendents and sports fields managers detailed evaluations of their venues agronomic conditions and needs so they can prescribe the most effective care regimens.

Also in November, the American Society of Agricultural and Biological Engineers named Exmark the winner of their annual AE50 Award for the Lazer Z mowers featuring RED Technology, an award presented for innovative new products that bring advanced technology to the marketplace.

Finally, on November 18, Toro was named the Home Depot Canada's 2013 Lawn and Garden Supplier of the Year at their annual Supplier Partnership meeting in Toronto. In 2012, we were honored with the same award for the US market.

These awards provide fitting testimony to our fundamental focus on excellence in the products and services we provide. However, we do not take such recognition for granted and continually strive to enhance all our businesses' performance levels beyond that which we have earned with these important accolades and have gotten us to where we are today. Such efforts have us well positioned to take advantage of opportunities ahead in 2014.

Let's take a few minutes to consider the prospects for each business.

First, in golf with rounds played being down last year, we realize some customers may be conservative with their purchases in 2014. They will continue to look for ways to reduce operational costs and seek products to help them do that. Even with many of our engineering dollars being tied up in Tier 4 development projects in recent years, we are still introducing other new innovative products for 2014 that will help courses increase their productivity and thus manage expenditures.

Examples include our MultiPro 1750 sprayer, which is a smaller version of the successful MultiPro 5800, and the Sand Pro Z that incorporates the speed of a zero turn mower into a bunker rake. With its patented rake pivoting system, the new Sand Pro has been shown to reduce the time it takes to prepare a bunker by up to 30% and enable operators to increase their daily output.

Enhancing productivity is equally important to our contractor customers who enthusiastically welcomed several new product offerings we unveiled during the Green Industry Expo the last week of October. These introductions included an expanded line of electronic fuel injected propane powered mowers; our new Horizon intelligence technology on zero return mowers that enhances the overall performance while monitoring engine temperature and oil pressure to ensure engine longevity; the new Toro Power Curve commercial snowblower, with our revolutionary curved rotor technology that has been helping homeowners power through tough snow conditions for nearly three decades. These new blowers feature extended life commercial grade rotors that are designed to last twice as long as those of our consumer rated models.

And rounding out our new landscape contractor offerings is a completely reengineered line of 21-inch commercial heavy duty walk power mowers that provide superior quality of cut, easy empty bags, premier engines and maintenance free transmissions to keep crews on the job and out of the service shop.

With commercial and residential construction investment projected to continue to expand, the outlook for growth for our professional construction and rental businesses looks similarly strong for 2014. The timing is fortuitous for our new construction line that will see its first full year in the market in 2014.

Of course, increase construction is also good news for our residential business. While we always welcome favorable weather, we cannot count on the accuracy of forecasts from key weather services that are predicting good snowfall amounts for December. If these forecasts are accurate, as they have proven to be in Minnesota this week, such timely snow would likely help accelerate retail activity. Our new compact two-stage lineup is poised for market success across the snow belt, assuming normal levels of snowfall occur.

Our spring products lineup for 2014 features three new the zero turn mowers, a new Toro Recycler walk power mower with a space-saving SmartStow feature, and an all-new Lawn-Boy walk power mower line. These new products and strong marketing programs will all enhance sales prospects for the coming year.

We are also optimistic about the growth opportunities for our residential and commercial irrigation business based on the positive housing news and exciting product advancements like our award-winning Evolution controllers.

Our professional lighting business is yet another likely benefactor of improved housing conditions. We are ready with outstanding new products including our Light Logic wireless control system, the industry's only wireless product that controls both lighting systems and irrigation controllers with a single handheld remote. Recently, we closed on a small lighting acquisition that will increase our product portfolio and provide access into additional markets with a quality value priced offering.

Next, our continued investments around the world in the micro irrigation field, like our recently completed acquisition in China, bolster our commitment to this growing market. As our presence has increased, so has the Company's global reputation as a stable, high-quality manufacturer.

That standing is supported by important advancements like our new Neptune flat emitter drip line technology that provides superior performance, resists clogging, is easy to install in various configurations and delivers exceptional durability. Overall market factors remain favorable for long-term growth and our solid positioning will help us provide customer valued solutions for the ever-growing global demand for food and do so in a way that promotes sustainability.

In summary, we remain steadfast in our focus on innovation, revenue growth, gross margin and SG&A improvement as we strive to achieve our Destination 2014 goals. The Company expects revenue growth of about 4% to 5% for fiscal 2014 and net earnings of about $2.85 to $2.90 per share. As Renee discussed, the Company expects to report net earnings for the first quarter of about $0.35 per share.

I mentioned at the beginning of the call that in seven months we will reach the 100th anniversary of our founding. When the Company was preparing to celebrate its quarter-century mark back in 1939, our President then, John Samuel Clapper wrote that the 25-year milestone was considerably above the average career of a business enterprise, which is still true today.

He went on to say that the loyal service of Toro's employees and distributors, a majority of whom had 10 or more years of service with the Company, was the company's guarantee of a high-quality product. What was true 75 years ago remains true today, the loyal service of our employees and channel partners are critical to the Company's success, as we prepare to embark on our second century. We salute them and we thank them for their loyal service and continued support.

This concludes our formal remarks. We will now take questions at this time. Britney, back to you.

(Operator Instructions). Sam Darkatsh.

Good morning, Mike. Good morning, Renee. So just several quick questions. I recognize or I understand that you are anticipating up to 50 basis points of gross margin improvement in fiscal 2014; however, I imagine that Q1 is going to be pretty heavily pressured based on the comparison of the Tier 4 impacts from last year. Can you give us a sense, Renee, of what Q1 gross margins might look like even if it is a ballpark?

You are correct, Sam, that the mix will be difficult to compare to last year where we had the acceleration from a Tier 1 standpoint. What I would say is it is probably best to look at our margins over the year and again then I would reiterate the 50 basis point expansion is the way to think about it.

So then a normal gross margin expansion if you had backed out of Q1, might it be closer to 100 basis points because I know you have limited inflation and you are going to have some pricing that is likely to go through. So I would imagine that a normal gross margin expansion in that type of environment might be closer to 100 basis points if we backed out Q1, might that be the case?

I don't think we have that here, Sam. Just to be clear on pricing, we will have less price impact in 2014 than we did in 2013. So we are looking at about a point of realization and some of that will play out obviously over the year. So I think it really more boils down to the mix and the mix will shift from more professional products to likely more residential products particularly if we get some snowfall as we hope to get.

Which leads, Mike, to my second question perfectly. The 4% to 5%, how should we look at that resi versus pro and US versus international to give us a sense of how that mix might shake out?

That is a good question. We have expectations that all of our businesses will grow so it is not an 80/20 -- we don't break that out -- but it is not an 80/20 where we expect the professional business to swing one way or the other. I guess I would say all in because there are some growth drivers on the professional side, that will pull the average up a bit and residential maybe a little the other way but they are not dramatically different.

Okay. Last question if I could. You have signaled that your share repurchases in 2014 might be more modest and your dividend both in absolute terms and in terms of payout is going up. First question would be are they related? And second question would be is that a signaling that perhaps either with the stock where it is or the opportunities for capital employment internally be it truly internally or be it through M&A might be a little bit more modest going forward?

You know, it is an interesting question and I think this is one of those that speaks to the power of and -- share buybacks and the dividend. I will be clear by raising this dividend and even the guideline that right now has about a $10 million impact when last year we bought back $100 million of stock. And so I think this is more a signal of our commitment and expectation of ongoing strong cash flow. I think it's again, it is both proves our yield somewhat. We are kind of at the edge there we thought and so I think we still maintain as Renee said, we still maintain our priorities which have been the case for several years that our preference would be to find the right opportunities to grow the Company by looking outside for acquisitions. But as you well know, that takes two and it can be lumpy and we still even with this dividend change have a great deal of capacity to do that. And lacking that, we will then continue our practice of returning that to shareholders with strong share repurchases as appropriate.

So I wouldn't read terribly much into the dividend. I think it is a commitment again back to the strong cash flow that we are just going to ratchet that up a bit.

Very helpful. I will defer to others. Thank you much.

Jim Barrett.

Good morning, everyone. Mike, could you talk a bit about Precision Sense, how big an opportunity is that? And it is my understanding there is thought of providing that as a service to your customers and if that is the case, what kind of service infrastructure will be required to make that happen?

This is a product that gets taken, Jim, to golf courses or to other venues, sports fields and such. It is pulled behind a vehicle that provides a number of measurements and feedback that then gets put together in a report to help customers manage their turf. I would say to start with, it is not a material number. It does make us more important to the customer. It clearly is something innovative.

Whether it will become a major service, that is something we are going to explore. I think that we believe that whole sensing technology around all of our products is going to continue to ratchet up -- sensing technology with irrigation systems, sensing technology on our products. I talked a little bit about that as we went through some of the new products and this is sensing technology into the turf itself.

So time will tell. It is something very innovative. Our customers have reacted positively about the idea and some of the reporting but it is just getting started. So it does make us more important to customers and we think that in itself is worth a lot.

Understood. Do any of your competitors, are they introducing a competitive type product?

Not to my knowledge. I think we are alone in the space right now.

Good. Then on a separate note, could you discuss the current outlook for growth in golf course construction in China?

I think that continues. We talked about this in the past and so there was a slowdown, some of that was the government playing a role. It has stabilized -- it is not as though there has been a tripling of that of the courses but there continues to be new golf course construction and interest there and so when we look at golf. obviously the domestic market is a large market but we are not going to see the growth there, we will see more of the growth internationally. Clearly China is adding to that growth.

So worldwide golf as we look at the business is in good shape. To whatever degree we see some modest contraction here in the US is more than offset by what we see growing outside. Asia would be key to that but it goes beyond Asia. Brazil is only a couple of years away from the Olympics, their golf courses are being developed down there. I'm pleased to say that the Toro irrigation will be used on the one that the Americans and others -- athletes around the world will be playing on. So we continue to expect to see growth.

Okay. Thank you very much.

Eric Bosshard.

Good morning. This is Tom Mahoney on for Eric this morning. Coming into 2013 kind of looking back at the guidance you guys gave coming into the year, outperformed that by about 10%. Can you go back to the year -- what were the key drivers of the upside through the year? And then kind of looking out to 2014 as you go through those buckets, how are you thinking about those buckets going forward into 2014? Looking for any areas of upside potential there.

Tom, I will answer that question and Mike can chime in as we go through it. But first of all when we look at the year, the factors that have really contributed to our margin expansion have been related to price, and as Mike mentioned earlier, we probably have a lower realized price in FY 14 than we in 2013 where we saw 2 points of realized price.

Commodities have been relatively stable. As I had mentioned, we expect that also to continue through 2014 and we will see, we will see what happens from a commodity standpoint.

Mix was favorable for us in fiscal 2013 where the professional business grew greater than the residential business and then I think in both years what we are seeing is the impact of our productivity initiative. So we are focused on that internally as well as working with our supply base on productivity.

And then you were expecting pro growth ahead of residential as a mix benefit again in 2014?

No, as we look forward in 2014, it is probably more balanced growth. As Mike had commented a moment ago, both will grow, maybe a little bit awaiting on the professional side. Productivity will continue as well. We will continue to focus on that throughout our Destination 2014 initiative but also beyond that. That is an ongoing focus area for us.

Got it. And then as you look back at the 4% growth in 2013, can you talk about that performance from a market share perspective, anything you are seeing in the competitive environment going forward?

Yes, I think we would look kind of across the portfolio and feel pretty good about our respective performance in each of the areas and we pay very close attention to that. So in professional, the golf business, Toro maintains strong position, strong share, strong results on the irrigation side where we compete.

I think we saw probably improvement in some of the riders, the consumer Z riders. Maybe a little bit of erosion on the walkers in that we had more limited placements last year of Lawn-Boy but the good news as we look forward is that will be expanded.

So we know the importance of that. You take care of market share, that is key to our driving profitable growth. And so all in, market share wise, we would feel it was a solid year for us and obviously now our focus is on 2014.

Great. Thank you very much.

David MacGregor.

Good morning. I guess just with respect to the first quarter revenue decline assumed in the $0.35 guidance, is it easier to talk about how you expect to comp against the first quarter of 2011 and is there any way you can give us some kind of sense of how that comp might look?

Yes, both 2011 and 2012 so it is -- 2013 as we said was an anomaly and --.

Sorry, yes, I want to get past the T4 and get to the year before that. So I apologize.

So fiscal 2012 is I think the comparison you are really asking for.

Yes, yes.

So in fiscal 2012, this looks more like that and now obviously in our number last year, we had not only the Tier 4 impact but we had the R&E pickup in there. So I think what we would say is as we always say, let's not focus too much on the quarter, this is a small quarter, we need to focus on the year. That is how we manage the business, two larger quarters and two kind of smaller quarters. And so we will get back to more normal course there.

I think you see our guidance reflected the growth in our annual guidance and that will come back into the second -- particularly the second and third quarter. There is a little variability in the small quarter, the Q1 we are in. Snow could play a bigger role there. We will see. So we think at this point we are just trying to get back on track, it is not a really apples and apples comparison to the first quarter of 2013.

Thinking about I guess the full-year as you think across your various lines of business, where within your guidance are you expecting the greatest revenue acceleration?

Well, from a revenue standpoint, as you know, we have talked about the investments we have made particularly the smaller businesses so again, a smaller part of the portfolio but they can accelerate because we are trying to turn them into bigger businesses and that is particularly in the rental and light construction as well as the micro irrigation.

The other core businesses are on golf, around landscape contractors, residential if you will, they are all solid businesses and they are going to expect to grow -- but accelerators would be those newer businesses.

Okay. And then just a follow-up on Sam's question on the M&A, I guess can you just talk about what is in the funnel right now? It does look as though by bumping up the payout ratio that maybe the M&A opportunity isn't coming through quite as quickly as you had anticipated, is it just because the opportunities just aren't there or is it valuations or maybe you could give us a more granularity around that?

Well, it would be a very consistent discussion. As we've said in the past, much of the M&A we would look at given our size company are private companies and until mom or dad who or whoever is ready to sell, you can't force it. Well, you could force it and then usually you regret it. And so we are very disciplined about the process. We have been very consistent in our messaging around this. We have some good people working on it, looking for those opportunities.

I don't think the funnel is any less full or fuller than it was a year ago or five. Obviously the downturn did play a role there. So we will continue to work it. Our messaging has been very consistent here.

It will happen but it by nature lumpy. So again I would say as I said to Sam, don't read too much into this dividend. We are talking about annually $10 million here whereas you look at -- that is 10% of what we repurchased in shares in 2013. It does move our yield up, that makes it a little more attractive there. It is kind of a signal of our ongoing strong cash flow.

So we think it is again, it is the power of and. We think we can do this dividend and continue to do share repurchases but our priority remains to look for the acquisitions, just be really nice to be able to schedule them but that is not the way that it works.

Okay. And then just finally on those acquisitions, you have gone through a rebranding there and it sounds like it was positive. I just thought I would ask -- are you seeing any kind of deceleration or maybe acceleration as a consequence of the rebranding?

Rebranding, I am not sure. (multiple speakers) The Aztec, yes, I am sorry. As we talked in the past, that was a business that from a financial standpoint was not a major investment. We bought a portfolio of products and drawings. We have gone through the process of integrating them into our plants and they are all being made in red. In fact, at the IT show that I mentioned earlier, we called out it is time for instead of a revolution, a RED-volution and the guys did a terrific job on launching that.

But with that said, we are a small player. There are two heavyweight players in that space and so it is going to be steady work to earn that both in the product, in the innovation and building the channel. But they are doing a lot. I will the business, the fellow running it and his team are doing a lot of good work on getting things headed in the right direction. But it won't be like throwing a switch, this will be something that we have to earn.

Sure. Thanks very much and congratulations on the Centennial.

At this time there are no further questions. I would like to turn the call over to Mike Hoffman for closing remarks.

Thank you, Britney. Thanks to all our listeners and those who have asked questions and your ongoing interest in Toro. We wish everyone a pleasant and safe holiday season and we will look forward to talking with you again in February where we will discuss our first-quarter results. Thank you and goodbye.

Ladies and gentlemen, that concludes the presentation for today's conference. You may now all disconnect and have a wonderful day.